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Clay Shaw's Alternative

By David S. Broder
Sunday, March 20, 2005; Page B07

President Bush's open-ended invitation for anyone to come forward with ideas on Social Security reform has brought responses from a number of Republican legislators. Some, such as Sen. Lindsey Graham of South Carolina, have won deserved praise for acknowledging that rescuing the endangered retirement, survivor and disability fund from the fiscal effects of the baby boom may require sacrifice from taxpayers and beneficiaries alike.

But, because of its source, another new idea on the bargaining table is entitled to more attention than it has received so far. It is the handiwork of Republican Rep. Clay Shaw of Florida, a 24-year veteran who served as chairman of the House Ways and Means subcommittee on Social Security until term-limited out at the beginning of this year.

_____More Broder_____
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Social Security

I have been covering Shaw since the 1970s, when he was mayor of Fort Lauderdale, and know him to be a serious legislator. If you assume, as most knowledgeable people do, that any solution to the Social Security problem will require bipartisan agreement, then your gaze naturally falls on people such as Shaw. Nine years ago, when he headed the subcommittee with jurisdiction over welfare, he successfully brokered the bill that has dramatically reduced the welfare rolls in this country.

In that instance he had to negotiate agreements with governors of both parties and the White House. The first two bills he passed drew presidential vetoes, but Shaw persisted and President Clinton signed the third version in 1996. This is a guy patient enough to wait for powerful people to embrace his ideas.

When I interviewed Shaw last week, he began by saying -- as do almost all Republicans -- that it is impossible to close the gap between promised Social Security benefits and current Social Security taxes unless younger workers are allowed to create individual retirement accounts invested in stocks and bonds.

The political reality, said this House veteran, is that Democrats are adamantly opposed to financing these private accounts by diverting one-third of the current 12.4 percent Social Security tax, as Bush has proposed. Shaw also says that drastically reducing future benefits by changing the formula by which they are indexed for inflation will be rejected by Democrats -- and by enough Republicans to block legislation.

"The only way to get a bipartisan bill passed," he argued, "is to make the private accounts an add-on to the existing system."

How to pay for them? Shaw's answer is to have the government pre-fund them from general revenue, without a tax increase. Under his plan, every worker who chooses could sign up to receive a tax credit of 4 percent of his or her wages, up to $1,000 a year. The tax credit would be deposited in the worker's account, and could be invested, as the worker wishes, in one of three approved index funds with varying mixes of stocks and bonds. Proceeds would accumulate tax-free but could not be touched until the worker retired or was disabled.

At that point, the worker would receive 5 percent of the accumulated savings as a lump sum, and the rest would revert to Social Security, which would then calculate a monthly lifetime payout. The government would guarantee that, whatever the size of the savings account, the monthly check would not be smaller than the promised Social Security benefit, but if the account has grown large enough, it could be higher. Workers who die before collecting benefits or who decide to forgo Social Security could leave their accounts to their heirs tax-free.

Shaw emphasizes the "security" aspect of this plan, with a guarantee that no one would face any reduction in benefits, higher Social Security taxes or a later retirement age.

How would it be financed? By borrowing $3.4 trillion from the Treasury. That is a staggering sum, he concedes, but he says that Social Security actuaries calculate that as people began to cash in their accounts later this century, the money the Treasury had advanced would come back, and in 75 years, all that debt would be repaid and excess cash would be generated each year -- which he would insist be used to retire other government debt.

Critics object that Shaw would be creating a new entitlement program, but he argues that it should, instead, be considered a way to eliminate what is now an unfunded government obligation to future retirees.

He is just beginning to walk the idea around Capitol Hill, looking particularly for Democratic co-sponsors. A patient man, he seems confident that his time will come.

davidbroder@washpost.com


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